The Different Types of Mortgage Loans

Fixed-Rate Mortgage Loans:
The interest rate for a fixed-rate mortgage remains constant for the duration of the loan.

Adjustable-Rate Mortgage Loans:
The interest rate for an adjustable-rate mortgage (or ARM loan) fluctuates during the duration of the loan. For more details, see What is an Adjustable Rate Mortgage?

80/20 Mortgage Loans:
Also known as a combo or piggyback mortgage, the 80/20 mortgage is, in effect, a home loan that requires no money down. Conventional mortgages traditionally require the borrower to make a 20-percent down payment. However, the 80/20 mortgage allows the borrower to take an additional mortgage (which should not be confused with a second mortgage) to cover the down payment. Since these two loans usually come from different lenders, the borrower is often required to pay two sets of closing costs. However, the cost of an 80/20 mortgage is generally less than paying private mortgage insurance (PMI).

Balloon Mortgage Loans:
A balloon mortgage is very similar to a fixed-rate mortgage, except the term (or duration) is shorter and the monthly payments are lower. However, a large payment (known as a “balloon payment”) is due at the end of the mortgage’s term. For more details, see What is a Balloon Mortgage?

Biweekly Mortgage Loans:
Rather than making monthly payments, a bimonthly mortgage allows the borrower to make smaller payments every other week.

Blanket Mortgage Loans:
The blanket mortgage is simply a single mortgage that covers multiple properties. It is used most frequently by commercial real estate developers.

Buydown Mortgage Loans:
By using discount points, the borrower makes a lump-sum payment up front that reduces the interest rate on the mortgage loan. A temporary buydown will reduce the monthly payments for the first few years of the mortgage, while a permanent buydown will reduce the interest rate for the mortgage’s entire term.

COFI Mortgage Loans:
The COFI (or Cost of Funds Index) mortgage is an adjustable-rate mortgage with flexible payment options. Each month, the interest rate is adjusted and the borrower is given options on how to pay (such as paying interest only).

Conventional Mortgage Loans:
In its most general terms, a conventional mortgage is a home loan acquired with a down payment (usually 20 percent). The conventional mortgage is neither insured nor guaranteed by a government-sponsored enterprise, such as the Department of Veterans Affairs (VA) or the Federal National Mortgage Association (FNMA, or Fannie Mae). For more details, see What is a Conventional Loan?

Convertible Mortgage Loans:
A convertible mortgage starts off as one type of mortgage (for example, fixed-rate) and becomes another type (for example, adjustable-rate). Just when this conversion occurs is up to the borrower, although certain terms might apply.

Dual-Index Mortgage Loans:
The dual-index mortgage (or DIM) is similar to an adjustable-rate mortgage.  However, the loan balance and payment amounts are calculated according to the fluctuation of wage rates as well as interest rates.

Graduated-Payment Mortgage Loans:
The graduated-payment mortgage (or GPM) features low initial monthly payments that increase gradually over the first 5-15 years. Once the increase stops, the borrower pays the same monthly amount for the duration of the loan.

Hybrid Mortgage Loans:
Similar to a convertible mortgage, a hybrid (or two-step) mortgage begins as a fixed-rate loan and converts into an adjustable-rate loan. However, the borrower has no say on when this conversion takes place. Hybrid mortgages are often referred to by numbers related to the terms of the loan. For example, a 23/7 loan would have a fixed rate for the first seven years, and then convert to an adjustable rate for the remaining 23 years. Sometimes, a hybrid mortgage is referenced by three numbers, such as a 30/5/5 loan. In this case, the loan is a 30 year mortgage that has a fixed rate for the first five years. After that, the rate will change every five years.

Interest-Only Mortgage Loans:
An interest-only mortgage is set up so that the borrower only pays on the interest for a specified amount of time. After the initial period has elapsed, the borrower begins making payments on the principal and the remaining interest. For more details, see What is an Interest Only Home Loan?

Jumbo Mortgage Loans:
A jumbo mortgage is a home loan that exceeds the maximum limits set by the Federal National Mortgage Association (FNMA, or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac). For more details, see What is a Jumbo Loan?

Pledged-Asset Mortgage Loans:
With a pledged-asset mortgage, the borrower uses assets such as stocks, bonds, and mutual funds to finance the home. This eliminates the need for a down payment and for private mortgage insurance, since the loan is financed 100 percent.

Reverse Mortgage Loans:
Specifically designed for retired senior citizens, the reverse mortgage allows borrowers to convert their home’s equity into cash to pay off the loan. For more details, see What is a Reverse Mortgage?

Shared-Appreciation Mortgage Loans:
In a shared-appreciation mortgage (or SAM), the lender offers the borrower a lower interest rate in exchange for a share of the home’s future value.

Simple-Interest Mortgage Loans:
A simple-interest mortgage is similar to an adjustable-rate mortgage, except the interest rate is calculated daily rather than monthly. Although this ultimately results in the borrower paying more, the monthly payments are smaller in the short-run.

Wraparound Mortgage Loans:
Sometimes, a seller will offer a house with a new mortgage that includes (or “wraps around”) an older, unpaid mortgage. The buyer makes mortgage payments to the seller who, in turn, uses the money to pay on the original loan. Since the wraparound mortgage is usually for a higher amount and interest rate than the original, this enables the seller to turn a profit. Wraparound mortgages are also known as overlapping or overriding mortgages.